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Zimbabwe’s Failure To Address Central Bank Quasi-Fiscal Losses Interfer With Monetary Management

By Clemence Mupfunya The extent of quasi-fiscal operations of the central bank depends on its matters with the government. As a rule, the central bank functions as the governmental fiscal agent with the financial markets are undeveloped and the level of the central bank independence is low government lending gets the major distribution. The quasi-fiscal operations are the activities of the central banks or other public financial or non-financial institutions outside the general government that are fiscal in their character, such as taxes, subsidies, or other direct bank credit or non-commercial public service provided by an enterprise through the cross-subsidisation. Zimbabwe’s failure to address continuing central bank quasi-fiscal losses has interfered with both monetary management and the independence and credibility of the Reserve Bank of Zimbabwe (RBZ). Realised quasi-fiscal losses in 2006 were estimated to have amounted to about 75% of gross domestic product (GDP). Those quasi-fiscal operations were financed by creating money creation or issuing RBZ securities, they contributed to the four-digit inflation that occurred in 2006. The remedy for the current situation is clearly to eliminate the causes of losses by implementing measures to improve the in-flow and out-flow of the central bank and restore its

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